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How to Prepare For Federal Student Loan Payments, Resuming in September 2022

President Joe Biden announced last week an extension of the suspended federal student loan payments through August 31, 2022.

When do student loan payments resume?

Until recently, the pause on student loan payments was set to end on May 1, 2202. Last week Biden announced an unexpected extension of payments, interest accrual, and collections on most federal student loans through August 31, 2022.

One of the first actions the federal government took after the breakout of the COVID-19 pandemic was to suspend student loan payments. All federal student loans were placed into forbearance, and the interest rate was set to 0% on March 13, 2020.

While payments were originally set to resume later in 2020, they’ve been pushed back several times under both the Trump and Biden administrations.

Although September might seem like a long way off, there’s no better time to start preparing.

How to prepare for your student loan payments

It’s been more than two years since federal student loan borrowers were required to make loan payments. And it’s safe to say that plenty of borrowers aren’t prepared to add them back into their monthly budgets. Here are four things you can do to start preparing for loan payments to resume.

1. Figure out how much you owe

It may have been a while since you’ve checked in on your federal student loan account. And if you’ve graduated since loan payments were paused, you may never have checked it.

The first step to preparing for loan payments to start again is to figure out exactly how much you owe. You can use the government’s free resource for learning about repayment based on where you are in the process.

While the amount you owe might seem daunting, it’s better to face the issue head-on and look at the big picture.

2. Determine your monthly payment

The next step to getting ready to make your student loan payments is to figure out what your monthly payment will be. If you’re on a standard repayment plan, then your payment should be the same as it was before payments were paused. But if you’re on an income-driven or graduated repayment plan, then your payments may change. Now is the time to figure out what they’ll be so you can start preparing.

3. Build up your emergency fund

Starting September 2022, student loan borrowers are going to have less disposable income available in their budgets. As a result, less money will be available to put toward other financial goals and financial emergencies that may come up.

Before payments resume, now is the time to make sure you have a healthy emergency fund in place. Wondering how much you should save? There’s some debate among financial experts, but most recommend saving enough to cover 3-6 months of expenses.

4. Make room in your budget for the payments now

You don’t have to wait until student loan payments resume to make room for them in your budget. In fact, it’s better to start now. You can get used to having that extra expense in your budget and have some time to adjust any spending habits that might cause you to go over budget. You can use free online personal finance tools to track your monthly expenses and build a sustainable budget.

Get Started: Sign Up for Personal Capital’s Free Financial Tools

But what should you actually do with the money you set aside for those payments?

Well, there are a few options. First, you can use that money to put toward your emergency fund, any high-interest debt you have, or another financial goal you have. You could also actually start making student loan payments early. Because there’s no interest on them right now, your payments will be more impactful than they will when the interest kicks back in.

Another strategy you can use is to set aside the money you would be putting toward loan payments in high-yield savings accounts. When loan payments kick back in, you can make one large lump-sum payment on your loans or put the money towards something else.

What to do if you can’t afford your payments

Unfortunately, millions of Americans are still facing financial hardship from the pandemic. A recent Pew Research Center report found that about half of non-retired adults will have a hard time reaching financial goals because of financial setbacks from the pandemic.

For many, these financial setbacks will make it hard to make student loan payments. Here are a few things you can do if you don’t think you’ll be able to afford your payments in September 2022.

1. Switch to an income-driven repayment plan

If you’ve been on a standard repayment plan for your loans, consider switching to an income-driven plan. The federal government offers four different income-driven plans which cap your payments at a certain percentage of your income. Most plans limit your payments to 10% of your discretionary income.

There’s a loan simulator on the federal financial aid website to help you determine what your payments would be under a different payment plan. If you’re ready to apply for an income-driven plan, you can request it through the Department of Education website.

2. Apply for loan deferment or forbearance

If you can’t afford to make payments at all in September, then you can request deferment or forbearance of your loans. Both deferment and forbearance allow you to pause your student loan payments due to financial hardship. But they’re typically used in different circumstances.

Depending on the type of loans you have, interest may accrue while your payments are paused and will capitalize when your payments resume if you don’t pay it off first. If you do apply for forbearance or deferment, be sure to make your loan payments until your request is approved so your loans don’t go into delinquency or default.

What about student loan forgiveness?

Plenty of borrowers have been hesitant to make any major progress on paying off their loans in the hopes that the Biden administration will forgive a portion of federal student loans, as was a part of his campaign platform.

Read More: Biden’s Plan for Loan Forgiveness

It’s impossible to know what actions the administration will take on student loan forgiveness. And for borrowers with large amounts of student loan debt, loan forgiveness likely wouldn’t wipe out all of their debt anyways.

Given the uncertainty, borrowers can use the time leading up to September 2022 to assess any developments in the situation. But once loan payments resume, each borrower will have to decide for themselves whether to try to aggressively tackle their loans, or simply make the minimum payments.

The bottom line

What can you do now? Start managing your finances in one place. Millions of U.S. households use the Personal Capital Dashboard to create a budget, analyze their investments, and plan for long-term goals, like debt paydown or retirement.

Let’s Get Started

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Vance is CERTIFIED FINANCIAL PLANNER® and Chartered Financial Consultant® who has been with Personal Capital since September 2016. He was drawn to Personal Capital for its fiduciary standard and technology-driven planning. After holding various roles with the company, he now works with clients in Personal Capital's Private Client Group.
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